MACOMB COMMUNITY COLLEGE FINANCIAL REPORT

Transcription

1 MACOMB COMMUNITY COLLEGE FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2017

2 MACOMB COMMUNITY COLLEGE BOARD OF TRUSTEES Jennifer Haase, Chairperson Frank Cusumano, Vice Chairperson Katherine Lorenzo, Secretary Roseanne DiMaria, Treasurer Kristi Dean, Trustee Joseph DeSantis, Trustee Vincent Viviano, Trustee James O. Sawyer IV, Ed.D., College President

3 MACOMB COMMUNITY COLLEGE TABLE OF CONTENTS INDEPENDENT AUDITOR S REPORT 1 MANAGEMENT S DISCUSSION AND ANALYSIS 3 FINANCIAL STATEMENTS Page Statement of Net Position 14 Statement of Revenues, Expenses and Changes in Net Position 15 Statement of Cash Flows 16 Notes to Financial Statements 18 SUPPLEMENTAL INFORMATION Required Supplementary Information 36 Combining Statement of Net Position 37 Combining Statement of Revenues, Expenses and Changes in Net Position 38

4 Rehmann Robson INDEPENDENT AUDITORS' REPORT 7124 Central Ave. Toledo, OH P: F: rehmann.com September 27, 2017 Board of Trustees Macomb Community College Warren, Michigan Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities and the discretely presented component unit of Macomb Community College (the College ), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the College's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Independent Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The financial statements of Macomb Community College Foundation were not audited in accordance with Government Auditing Standards. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the College s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Nexai Rehmann is an independent member of Nexia International. CPAs & Consultants Wealth Advisors Corporate Investigators

5 Opinions In our opinion, based on our audit, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the discretely presented component unit of Macomb Community College as of June 30, 2017, and the results of their operations and cash flows, where applicable, for the year then ended in conformity with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis and the schedules for the pension plan, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the College's basic financial statements. The supplementary combining statements identified in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we do not express an opinion or provide any assurance on it. Predecessor Auditor The financial statements of Macomb Community College as of June 30, 2016 were audited by other auditors whose report dated September 13, 2016, expressed an unmodified opinion on those statements. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued, under separate cover, our report dated September 27, 2017, on our consideration of Macomb Community College's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the College's internal control over financial reporting and compliance

6 Management s Discussion and Analysis - Unaudited The discussion and analysis of Macomb Community College s (the College) financial statements provides an overview of the College s financial position at June 30, 2017, 2016 and 2015 and its activities for the three years ended June 30, This discussion has been prepared by management and should be read in conjunction with the financial statements and the notes thereto, which follow this section. The financial statements, footnotes and this discussion are the responsibility of management and are prepared in accordance with Governmental Accounting Standards Board (GASB) pronouncements. Using the Financial Report This financial report includes the report of independent auditors, management s discussion and analysis, the basic financial statements, which consist of the statement of net position, the statement of revenues, expenses and changes in net position, the statement of cash flows and notes to the financial statements. Following the basic financial statements and footnotes are three supplemental schedules: the GASB 68 required supplementary information, the combining statement of net position and the combining statement of revenues, expenses and changes in net position as of and for the year ended June 30, The College s financial statements include all assets and liabilities using the accrual basis of accounting. All revenues and expenses are recorded as incurred regardless of when cash is received or paid. Revenues and expenses are separated into categories of operating and nonoperating. Under the provision of GASB Statement No. 61, The Financial Reporting Entity: Omnibus, the Macomb Community College Foundation (the Foundation) has been determined to be a component unit. Accordingly, the Foundation is discretely presented in the College s financial statements. Refer to Note 1 and Note 10 of the financial statements for information regarding the Foundation. Financial Highlights The financial statements report information on the College as a whole. These statements report the College s financial position as of June 30, 2017 and 2016 and changes in net position for the two years ended June 30, The College s financial position remained strong at June 30, 2017 and 2016, with assets of $386.5 million and $387.5 million, respectively and liabilities of $197.6 million and $193.8 million, respectively. The College recorded additional net pension liability of $8.7 million to reflect its share of the unfunded Michigan Public School Employees Retirement System (MPSERS) long-term net pension liability. The increase was offset by a $3.2 million decrease in accrued payroll and other compensation. The change in net position was impacted by the change in market value of investments. In 2017, the College had $6.5 million in net realized and unrealized losses, compared to a net realized and unrealized gain of $5.0 million in For the fiscal year ended June 30, 2017, the College s revenues and other support exceeded expenses, thereby increasing the net position of the College by $1.1 million as compared to $14.1 million in the previous year. 3

7 Management s Discussion and Analysis Unaudited (Continued) The Statement of Net Position and the Statement of Revenues, Expenses and Changes in Net Position The following is a comparative analysis of key components of the Statement of Net Position as of June 30: Assets Current assets $ 31,940,831 $ 34,832,544 $ 33,170,189 Restricted cash and investments ,292 Long-term investments 202,205, ,211, ,844,266 Capital assets, net 152,350, ,444, ,864,286 Total Assets 386,496, ,489, ,308,033 Deferred Outflows of Resources 30,276,943 23,891,260 15,402,255 Liabilities Current liabilities 17,139,120 22,243,052 22,251,100 Long-term liabilities, net 2,917,554 2,779,064 2,828,868 Net pension liability 177,493, ,757, ,510,485 Total Liabilities 197,550, ,779, ,590,453 Deferred Inflows of Resources 6,030,011 5,477,133 16,086,243 Net Position Net Investment in capital assets 152,350, ,444, ,844,286 Restricted for: Expendable endowments, scholarships and grants 1,803,070 2,127,319 2,096,763 Expendable debt service ,292 Unrestricted 59,039,492 59,551,870 57,663,251 Total Net Position $ 213,192,946 $ 212,123,993 $ 198,033,592 At June 30, 2017, unrestricted net position is designated for future capital outlay and maintenance improvements as well as for the implementation of GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions, which the College s share of the liability is estimated to be $66 million. The College recorded an additional $8.7 million and $23.2 million in 2017 and 2016, respectively, to reflect the College s share of the MPSERS long-term net pension liability as required by GASB No

8 Management s Discussion and Analysis Unaudited (Continued) The following is a comparative analysis of key components of the revenues, expenses and change in net position for the years ended June 30: Operating Revenues $ 58,429,774 $ 58,563,757 $ 60,686,277 Operating Expenses 159,111, ,386, ,356,691 Operating Loss (100,681,311) (100,822,449) (98,670,414) Nonoperating Revenues 98,609, ,091, ,626,088 Other Revenues 3,141,093 3,821, ,309 Change in Net Position 1,068,953 14,090,401 14,329,983 Net Position - Beginning of year 212,123, ,033, ,715,308 Adjustment for change in accounting principle - - (147,011,699) Net Position - Beginning of year, as restated 212,123, ,033, ,703,609 Net Position - End of year $ 213,192,946 $ 212,123,993 $ 198,033,592 Operating Revenues Operating revenues include all transactions that result in sales and / or receipts from goods and services, such as tuition and fees and ticket sales revenue from the Macomb Center for Performing Arts. In addition, certain federal, state, and private grants are considered operating if they are not for capital purposes and are considered a contract for services. Operating revenues consisted of the following during the years ended June 30: Operating Revenues Tuition and fees $ 45,215,543 $ 44,836,151 $ 47,493,206 Federal grants and contracts 6,670,569 7,009,778 6,390,917 State and local grants and contracts 211, , ,599 Nongovernmental grants 124, , ,038 Center for Performing Arts revenue 1,949,747 1,715,752 1,849,291 Miscellaneous 4,258,003 4,231,490 4,375,226 Total Operating Revenues $ 58,429,774 $ 58,563,757 $ 60,686,277 5

9 Management s Discussion and Analysis Unaudited (Continued) The following is a graphic illustration of operating revenues for fiscal year 2017: Nongovernmental grants 0.2% State and local grants and contracts 0.4% Center for Performing Arts revenue 3.3% Miscellaneous 7.2% Federal grants and contracts 11.4% Tuition and fees 77.5% For the three years ended June 30, 2017, there was a 4.8 percent decline in net tuition and fee revenue of $2.3 million. This revenue decrease is due to a combination of a 5.7 percent increase in tuition rates, a 7 percent decline in credit hours and a 5 percent increase in the amount of tuition and fees paid with financial aid during the three year period. In September 2013, the College received an award of $24.9 million from the Department of Labor to lead a consortium of eight Michigan community colleges to leverage growth opportunities in advanced manufacturing for the creation and expansion of innovative partnerships between community colleges and businesses and to educate and train workers for in-demand jobs. The College s associated grant revenue of $9.6 million will be received over the period of four years through September 30, The College also received an award of $4.0 million from the Department of Labor for the American Apprenticeship Initiative on October 1, This initiative is intended to provide a catalyst in supporting a uniquely American apprenticeship system that meets our country s particular economic, industry and workforce needs. The College s revenue will be received over the five year grant period that ends September 30, Ticket sales at the Center for Performing Arts had an increase of $100,000 or 5.4 percent during the three years ended June 30, The Performing Arts Center continues to be a popular venue for entertainment within the county. Miscellaneous revenue, which consists primarily of food service revenue, facility rental revenue and bookstore sales commissions, decreased by $117,000 or 2.8 percent from 2015 through 2017 due to decreases in bookstore commissions from enrollment trends, delinquent account collections due to fewer delinquent student accounts and facility rental revenue. 6

10 Management s Discussion and Analysis Unaudited (Continued) Operating Expenses Operating expenses are the costs necessary for the College to provide services and conduct the programs necessary to carry out the College s mission. Operating expenses consisted of the following for the three years ended June 30: Operating Expenses Instruction $ 58,631,207 $ 58,227,253 $ 55,436,881 Public service 4,347,578 4,079,316 4,213,662 Instructional support 21,764,378 21,312,410 19,932,531 Student services 28,212,573 29,501,305 34,438,939 Institutional administration 15,374,569 17,908,057 16,520,901 Operation and maintenance of plant 15,557,161 14,887,054 16,005,641 Depreciation 15,223,619 13,470,811 12,808,136 Total Operating Expenses $ 159,111,085 $ 159,386,206 $ 159,356,691 Included in expenses are amounts funded through state appropriations to pay the College s portion of the MPSERS Unfunded Actuarial Accrued Liability (UAAL). Funds received from the State and paid to the Office of Retirement Services were $7.6 million, $7.1 million and $5.0 million for the years ended June 30, 2017, 2016 and 2015, respectively. The following is a graphic illustration of operating expenses for the year ended June 30, 2017: Operation and maintenance of plant 9.8% Depreciation 9.6% Instruction 36.8% Institutional administration 9.7% Student services 17.7% Public service 2.7% Instructional support 13.7% 7

11 Management s Discussion and Analysis Unaudited (Continued) The primary operating expenses of the College are salaries, payroll taxes and related fringe benefits. The College incurred approximately $106.0 million, $106.2 million, and $101.8 million of payroll-related expenses during the three years ended June 30, This represents 66.6 percent, 66.6 percent and 63.9 percent of the College s operating expenses during those years, respectively. Wage expenses have increased $1.6 million or 2.4 percent during the three years ended June 30, 2017 primarily due to contractual increases, filling vacant positions, renovation related work and grant-funded positions. Benefit expenses have increased $2.5 million or 7.3 percent during the three years ended June 30, This increase is offset by a $2.6 million increase in state appropriations for UAAL received over the same period, the purpose of the UAAL state appropriation is to assist in funding the MPSERS unfunded pension liability. The UAAL state appropriations received were $7.6 million, resulting in $2.0 million of revenue after consideration of GASB 68 in 2017, $7.1 million in 2016 and $5.0 million in Nonoperating Revenues The College receives substantial nonoperating support from state appropriations, property tax revenue and Federal Pell grants thus operating expenses normally exceed operating revenues resulting in an operating loss. Nonoperating revenues and expenses are an integral component in funding annual operations. Nonoperating revenues represent revenue sources that are primarily non-exchange in nature in which the College receives value without directly giving equal value in return. They consist primarily of state appropriations, property tax revenue and Federal Pell grants. Nonoperating revenues (expenses) were comprised of the following for the three years ended June 30, 2017: Nonoperating Revenues (Expenses) State appropriations $ 33,860,702 $ 33,415,600 $ 32,982,219 State appropriations for UAAL 2,048,692 2,156,690 4,996,437 Local community stabilization 3,059, Property tax levy 35,960,888 39,030,300 37,577,936 Federal Pell grants 24,302,742 25,757,348 29,089,997 Investment income 4,577,262 4,502,068 4,507,080 Net realized and unrealized gain on investments (6,486,521) 4,980,253 3,726,944 Interest expense - (62,917) (128,182) Gifts between College and Foundation 1,285,904 1,312,254 (126,343) Net Nonoperating Revenues $ 98,609,171 $ 111,091,596 $ 112,626,088 8

12 Management s Discussion and Analysis Unaudited (Continued) The following is a graphic illustration of nonoperating revenues for the year ended June 30, 2017: Investment income 5% Federal Pell grants 25% Net realized and unrealized gains on investment 7% Gifts between College and Foundation 1% Property tax levy 36% Local community stabilization 3% State appropriations 34% State appropriations for UAAL 2% Due to stabilizing economic conditions within the State, there was an increase of $878,000 or 2.7 percent in state appropriations during the three years ended June 30, In addition, Public Act 300 of 2012 instituted a percent cap on the employer s share of the UAAL for reported MPSERS wages. This resulted in a state appropriation for UAAL of $7.6 million, resulting in $2.0 million of revenue after consideration of GASB 68 in 2017 and $7.1 million and $5.0 million in 2016 and 2015, respectively, as well as MPSERS related cash outlay and expenses of equal amounts. Although property tax values increased by 4.7 percent over the three year period due to changes in housing market values and new construction, property tax revenue decreased by $3 million due to 2012 legislation that provided personal property tax exemption for small tax payers and eligible manufacturing personal property. The 2012 legislation also created the Local Community Stabilization Authority (Authority) to provide for the reimbursement of the lost personal property tax revenue through share of a 6% use tax levied by the Authority. The property tax revenue from the College s debt levy of $2.8 million and $2.6 million for the years ending June 2016 and 2015, respectively ended in 2016 as the final bond payment was made on May 1, 2016 and the debt levy concluded. The combined operating and technology millage rate was for the years 2015, 2016 and The debt retirement millage rate was in 2015 and in Improving economic conditions and related job markets in southeastern Michigan as well as a declining number of high school graduates in the county contributed to a 7 percent enrollment decline and a 14.1 percent decline in the number of financial aid students over the three year period. As a result, Federal Pell grants decreased by $4.8 million or 16.5 percent during the three year period. 9

13 Management s Discussion and Analysis Unaudited (Continued) Stable interest rates resulted in a minimal increase in investment income of $70,000 over the three years ended June 30, The weighted average interest rates on cash and investments for the years 2017, 2016, and 2015 were 2.33, 2.21, and 2.25 percent, respectively. The market value for government agency bonds decreased in 2017 as a result of market conditions and the potential for increasing interest rates. The net realized and unrealized loss on investments was $6.5 million in 2017 and the net realized and unrealized gain on investments was $5.0 million and $3.7 million in 2016 and 2015 respectively. The College portfolio is heavily weighted in government instrumentalities and municipal bonds that fluctuate in value with rising and declining interest rates. As the College intends to hold the instrumentalities and bonds to maturity or call, the market value fluctuations do not indicate true or realized gains or losses. Other Revenues Other revenues consist of items that are typically nonrecurring, extraordinary, or unusual to the College. The College received a $2.8 million award from the State in March 2015 for skilled trades equipment, of which $2.4 million and $400,000 was expended in 2016 and 2017, respectively. In 2016, the College recorded $3.8 million of state capital outlay revenue for the renovation of south campus C building. This $8.5 million renovation project is funded by the State and College equally sharing the costs at $4.25 million each. The project is complete and the remaining funds of $208,000 were provided by the State during the year ended June 30, Statement of Cash Flows The primary purpose of this statement is to provide relevant information about the cash receipts and cash payments of an entity during a period. The statement of cash flows also helps assess: An entity s ability to generate net cash flows from operations Its ability to meet its obligations as they come due, and Its needs for external financing Following is a comparative analysis of the cash flows of the College for the three years ended June 30: Cash provided by (used in): Operating activities $ (86,788,741) $ (79,429,877) $ (84,806,041) Noncapital financing activities 100,376,829 99,061, ,587,091 Capital and related financing activities (14,061,615) (20,201,483) (18,456,664) Investing activities (1,767,771) 2,114,634 (8,505,617) Net change in cash and equivalents (2,241,298) 1,545,132 (10,181,231) Cash and equivalents- Beginning of year 18,214,720 16,669,588 26,850,819 Cash and equivalents- End of year $ 15,973,422 $ 18,214,720 $ 16,669,588 10

14 Management s Discussion and Analysis Unaudited (Continued) Net cash and equivalents used in operating activities totaled $83.9 million in This was financed by $100.4 million of net cash flows from noncapital financing activities such as property taxes, Federal Pell grants and state appropriations. Net cash used in capital and related financing activities totaled $16.9 million during 2017, which is primarily the result of capital expenditures. Net cash used in investing activities totaled approximately $1.8 million. The net result of all cash flows is a decrease in cash and equivalents of $2.2 million in Net cash and equivalents used in operating activities totaled $79.4 million in This was financed by $99.1 million of net cash flows from noncapital financing activities such as property taxes, Federal Pell grants and state appropriations. Net cash used in capital and related financing activities totaled $20.2 million during 2016, which is primarily the result of capital expenditures. Net cash provided by investing activities totaled approximately $2.1 million. The net result of all cash flows is an increase in cash and equivalents of $1.5 million in Net cash and equivalents used in operating activities totaled $84.8 million in This was financed by $101.6 million of net cash flows from noncapital financing activities such as property taxes, Federal Pell grants and state appropriations. Net cash used in capital and related financing activities totaled $18.5 million during 2015, which is primarily the result of capital expenditures. Net cash used in investing activities totaled approximately $8.5 million. The net result of all cash flows is a decrease in cash and equivalents of $10.2 million in Capital Assets The College had $152.4 million, $150.4 million and $140.9 million invested in capital assets, net of accumulated depreciation of $221.1 million, $209.3 million and $200.6 at June 30, 2017, 2016 and 2015, respectively. Depreciation charges totaled $15.2 million, $13.5 million and $12.8 million respectively, for the years then ended Capital assets Land and improvements $ 15,785,806 $ 15,907,123 $ 15,888,774 Infrastructure 16,957,057 16,957,057 16,957,058 Building and improvements 276,773, ,868, ,506,824 Furniture, fixtures and equipment 59,753,870 56,080,007 49,042,079 Library materials 2,417,814 2,443,327 2,509,627 Construction in progress 1,809,821 7,442,196 5,594,901 Accumulated depreciation (221,147,891) (209,253,462) (200,634,977) Total Capital assets $ 152,350,384 $ 150,444,804 $ 140,864,286 Major capital additions during 2017 were as follows: Campus Description Amount South G building renovation $ 10,055,000 Center A building renovation 6,142,000 Center C building renovation 1,905,000 Center Pole barn 272,000 Center Mechanical and roof upgrades 240,000 Total $ 18,614,000 11

15 Management s Discussion and Analysis Unaudited (Continued) Economic Factors that will Affect the Future The economic position of the College is closely tied to that of Macomb County and the State of Michigan. While there has been recent economic stabilization in employment and housing markets, the economic future continues to remain uncertain. State appropriations for community colleges continue to lag inflation and decline as a percentage of all funding sources. In fiscal year 2002, state appropriations were 27 percent of the College revenues and in 2017 they were 25 percent of College revenues. State appropriations increased by 1.3 percent for the fiscal year ending 2017 and are anticipated to increase by an additional 0.5 percent in State appropriation revenue levels will continue to remain uncertain for future years as the State of Michigan continues to address balancing the state budget as well as the unfunded pension liabilities. Macomb County taxable value and the resulting property tax revenue decreased by.8% percent in These values are expected to increase 2.9 percent in due to the stabilization of home values and new construction offset by the loss of taxable value due to Personal Property tax reforms legislated by the State. Over a ten year period there has been a decline in operating property tax revenue of approximately $10 million or 22 percent. Home sales and new construction have improved particularly in the northern areas of the county, indicating that property tax declines associated with prior years are beginning to reverse. At approximately 26 percent of total general fund revenue, property tax revenue has been a very important source of revenue to the College over the years, especially in light of uncertain state appropriations which have also lagged inflation since This has and will continue to have a significant impact on College resources for the next few years; even when economic conditions improve, property tax values due to State statute cannot increase at a rate greater than inflation. To partially offset property tax revenue losses and state appropriation declines, tuition rates will increase approximately 3.1 percent beginning in the fall 2017 semester. Despite these increases, the College s tuition rates remain below the average rate charged by Michigan community colleges and are approximately one quarter of the university tuition rates in southeastern Michigan. Payroll and related expenses represent approximately 66.6 percent of the total operating expenditures reported on the June 30, 2017 statement of revenues, expenses and changes in net position. As signed into law on June 13, 2013, the Education Omnibus Budget (PA 60 of 2013) provides state appropriated funding to community colleges for fiscal years 2015, 2016 and This act results in state funding for the Unfunded Actuarial Accrued MPSERS liability in excess of the percent cap and resulted in receipts of $5.0 million, $7.1 million and $7.6 million for fiscal year 2015, 2016 and 2017 respectively with corresponding payments of equal amounts in each year. Uncertainty remains regarding future MPSERS funding levels due to various factors including post-employment benefits funded on a cash basis, greater numbers of retirees receiving benefits from the pension system, investment performance and a lawsuit filed in the Michigan Court of Claims against MPSERS, challenging the legality of Public Act 75 that requires all school employees to pay an additional 3 percent of their compensation into a fund for retiree health insurance with no guarantee that the benefits will be available to them upon retirement. 12

16 Management s Discussion and Analysis Unaudited (Continued) The Governmental Accounting Standards Board issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions which requires governments that provide postemployment benefits other than pensions (OPEB) to recognize their share of the net OPEB liability related to participation in the MPSERS plan. The College s estimated share of the OPEB liability is $66 million for which the College has designated the balance of the unrestricted net position for the implementation of GASB Statement No. 75, which takes effect for the year ended June 30, The College is committed to expanding educational and enrichment opportunities for our students and the community as well as the College s strategy to apply for grants to fund certain initiatives. The table below outlines a future, multi-year major construction and renovation program as approved by the College Board of Trustees, which support this commitment and is to be financed by designated College funds. Year Campus Description Future Cost 2018 South B building renovation 7,100,000 Center N building renovation 3,500,000 Center E building renovation 6,960,000 Center L & M building renovation 5,000,000 South F building renovation 3,350,000 South J building renovation 6,730,000 South and Center Various projects 1,500, South D building renovation 5,300,000 South K building renovation 7,400,000 Center B building renovation 2,965,000 South and Center Various projects 1,500,000 Total $ 51,305,000 Capital outlay appropriations from the State are being requested to cost share in the renovation of the Robert E. Turner Advanced Technology Center at South Campus. If the request is approved, planning will begin on this priority project, which could impact the renovation schedule noted above. 13

17 Statement of Net Position June 30, 2017 and 2016 College Component Unit - Foundation ASSETS Current Assets Cash and cash equivalents $ 15,973,422 $ 18,214,720 $ 92,098 $ 51,399 Short-term investments 1,540,241 1,515,754 22,498,767 20,701,259 Property taxes receivable - net of allowance for doubtful 74,213 58, accounts of $145,000 in 2017 and 2016 State appropriation receivable 7,568,452 7,419, Accounts receivable - net of allowance for doubtful 1,713,699 1,777, accounts of $200,000 in 2017 and 2016 Federal and state grants receivable 1,703,901 2,351, Student loans receivable 127, , Inventories 187, , Prepaid expenses and other assets 3,051,301 3,163,542 3,792 4,613 Total Current Assets 31,940,831 34,832,544 22,594,657 20,757,271 Long-term investments 202,205, ,211, Capital assets, net 152,350, ,444, Total Assets 386,496, ,489,267 22,594,657 20,757,271 DEFERRED OUTFLOWS OF RESOURCES - Note 4 Deferred pension amounts 30,276,943 23,891, LIABILITIES Current Liabilities Accounts payable 7,590,018 8,900, ,397 (99,505) Accrued payroll and other compensation 4,160,603 7,366, Other accrued liabilities 1,761,239 2,137, Deposits 429, , Unearned revenue 3,197,644 3,009,388 25,000 - Total Current Liabilities 17,139,120 22,243, ,397 (99,505) Accrued Vacation 2,917,559 2,779, Net pension liability 177,493, ,757, Total Liabilites 197,550, ,779, ,397 (99,505) DEFERRED INFLOWS OF RESOURCES Deferred pension amounts 6,030,011 5,477, NET POSITION Net investment in capital assets 152,350, ,444, Restricted for: Nonexpendable endowments - - 7,039,074 6,434,092 Expendable endowments, scholarships and grants 1,803,070 2,127,319 3,089,722 2,853,098 Unrestricted 59,039,492 59,551,870 12,224,464 11,569,586 Total Net Position $ 213,192,946 $ 212,123,993 $ 22,353,260 $ 20,856,776 14

18 Statement of Revenues, Expenses and Changes in Net Position Years Ended June 30, 2017 and 2016 College Component Unit - Foundation OPERATING REVENUES Tuition and fees - Net of scholarship allowances of $ 45,215,543 $ 44,836,151 $ - $ - $14,000,000 in 2017 and $13,600,000 in 2016 Federal grants and contracts 6,670,569 7,009, State and local grants and contracts 211, , Nongovernmental grants 124, , Center for Performing Arts revenue 1,949,747 1,715, Miscellaneous 4,258,003 4,231,490 27,932 45,787 Total Operating Revenues 58,429,774 58,563,757 27,932 45,787 OPERATING EXPENSES Instruction 58,631,207 58,227, Public service 4,347,578 4,079, Instructional support 21,764,378 21,312, Student services 28,212,573 29,501, Institutional administration 15,374,569 17,908, Operation and maintenance of plant 15,557,161 14,887, Depreciation 15,223,619 13,470, Foundation operations and awards , ,644 Total Operating Expenses 159,111, ,386, , ,644 OPERATING LOSS (100,681,311) (100,822,449) (721,389) (516,857) NONOPERATING REVENUES (EXPENSES) State appropriations 33,860,702 33,415, State appropriations for UAAL 2,048,692 2,156, Local Community Stabilization 3,059, Property tax levy 35,960,888 39,030, Federal Pell grants 24,302,742 25,757, Investment income 4,577,262 4,502, , ,091 Net realized and unrealized gain (loss) on investments (6,486,521) 4,980,253 1,696,559 (643,286) Interest expense - (62,917) - - Gifts between College and Foundation 1,285,904 1,312,254 (1,285,904) (1,312,254) Gifts , ,286 Net Nonoperating Revenues 98,609, ,091,596 1,626,356 (604,163) OTHER REVENUES State capital appropriations 3,036,811 3,774, Capital gifts and grants 104,282 46, Additions to permanent endowments , ,697 Total Other Revenues 3,141,093 3,821, , ,697 CHANGE IN NET POSITION 1,068,953 14,090,401 1,496,489 (570,323) Net Position - Beginning of year 212,123, ,033,592 20,856,776 21,427,099 NET POSITION - END OF YEAR $ 213,192,946 $ 212,123,993 $ 22,353,265 $ 20,856,776 15

19 Statement of Cash Flows Years Ended June 30, 2017 and CASH FLOWS FROM OPERATING ACTIVITIES Tuition and fees $ 45,467,891 $ 45,992,614 Grants and contracts 7,653,919 7,770,154 Payments to suppliers (74,463,317) (71,440,385) Payments to employees (71,654,984) (67,699,502) Center for Performing Arts charges 1,949,747 1,715,752 Other 4,258,003 4,231,490 Net Cash Used In Operating Activities (86,788,741) (79,429,877) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Local property taxes 35,945,251 36,877,039 Gifts and contributions for other than capital purposes 1,285,904 1,312,254 William D. Ford direct lending receipts 9,211,469 9,482,090 William D. Ford direct lending disbursements (9,188,681) (9,481,233) Federal Pell grants 24,302,742 25,757,348 Local community stabilization funding 3,059,502 - State appropriations 35,760,642 35,114,360 Net Cash Provided By Noncapital Financing Activities 100,376,829 99,061,858 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchase of capital assets (17,202,708) (23,083,927) Principal paid on capital debt - (3,020,000) Capital grant and gift proceeds 3,141,093 3,821,254 Debt fund property tax - 2,156,690 Interest paid on capital debt - (75,500) Net Cash Used In Capital and Related Financing Activities (14,061,615) (20,201,483) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments 77,108, ,647,884 Interest on investments 5,232,602 5,135,297 Purchase of investments (84,108,414) (191,668,547) Net Cash Provided By (Used In) Investing Activities (1,767,771) 2,114,634 NET CHANGE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS - Beginning of year CASH AND CASH EQUIVALENTS - End of year (2,241,298) 1,545,132 18,214,720 16,669,588 $ 15,973,422 $ 18,214,720 16

20 Statement of Cash Flows (continued) Years Ended June 30, 2017 and 2016 RECONCILIATION OF OPERATING LOSS TO NET CASH USED IN OPERATING ACTIVITIES: Operating loss $ (100,681,311) $ (100,822,449) Adjustment to reconcile operating loss to net cash used in operating activities: Depreciation 15,223,619 13,470,811 Net (gain) loss on disposal of capital assets (87,977) 32,597 Change in operating assets and liabilities which provide (use) cash Accounts receivable 64, ,973 Federal and state grant receivable 647,438 (10,210) Inventories (5,222) 51,063 Prepaid assets and other current assets 112,241 (225,078) Deferred outflows of resources (6,385,683) (8,489,005) Accounts payable (1,310,474) 1,744,065 Accrued payroll and other compensation (3,067,480) 577,716 Other accrued liabilities (375,897) (101,496) Deposits (399,842) 547,956 Unearned tuition and fees 188, ,490 Deferred inflows of resources 552,878 (10,609,110) Net pension liability 8,736,621 23,246,800 NET CASH USED IN OPERATING ACTIVITIES $ (86,788,741) $ (79,429,877) 17

21 Notes to Financial Statements Note 1 - Basis of Presentation and Significant Accounting Policies Reporting Entity - Macomb Community College (the College) is a Michigan community college whose financial statements have been prepared in accordance with generally accepted accounting principles applicable to public colleges and universities outlined in Governmental Accounting Standards Board (GASB) Statement No. 35 and the Manual for Uniform Financial Reporting - Michigan Public Community Colleges, 2001 (MUFR). The College reports as a Business Type Activity, as defined by GASB Statement No. 35. Business Type Activities are those that are financed in whole or in part by fees charged to external parties for goods or services. The College s functional expense classifications are in accordance with the guidance in the MUFR. The accompanying financial statements have been prepared in accordance with criteria established by GASB for determining the various governmental organizations to be included in the reporting entity. These criteria include significant operational or financial relationships with the College. Based on this criteria, the College has determined that the Macomb Community College Foundation (the Foundation) meets the criteria of a component unit. The Foundation is a separate legal entity established as a 501(c)(3) corporation to accept, collect, hold and invest donations made for the promotion of educational and cultural activities at and on behalf of the College. The Foundation is discretely presented in the financial statements of the College. Separate audited financial statements of the Foundation are available by contacting the Macomb Community College Foundation at East 12 Mile Road, Warren, MI Significant Accounting Policies - Significant accounting policies followed by Macomb Community College are described below. Basis of Accounting Macomb Community College - The financial statements have been prepared using an economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned and expenses are recorded when an obligation has been incurred. Basis of Accounting Component Unit - The Foundation reports under the provisions of Accounting Standards Codification Topic 958, Not-For-Profit Entities. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition and presentation features. With the exception of necessary presentation adjustments, no modifications have been made to the Foundation s financial information in the College s financial report for these differences. Use of Estimates - The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. Significant estimates include but are not limited to the accounts receivable allowance, net pension liability, and deferred outflows and inflows related to pension amounts. 18

22 Notes to Financial Statements Note 1 - Basis of Presentation and Significant Accounting Policies (continued) Cash and Cash Equivalents - Cash and cash equivalents consists of deposit accounts and highly liquid investments with an initial maturity of three months or less. Restricted Cash and Investments - Restricted cash and investments consists of cash and investments that have restrictions for the purpose of unspent debt service funds. Investments - The College investments must conform to State statutes governing investment of public funds and are limited to allowable investments as stated in the statute. College investments held at June 30, 2017 and June 30, 2016 were in Certificates of Deposit, Governmental Instrumentalities or Michigan Municipal Bonds. Realized and unrealized gains and losses are reflected in the Statement of Revenues, Expenses and Changes in Net Position. Investments are classified as short-term or long-term based on the instruments maturity date. The Foundation maintains mutual fund investment accounts for its nonexpendable and expendable endowments. Realized and unrealized gains and losses from securities in the investment accounts are allocated annually. The College carries its investments at fair value, which is determined generally by using quoted market prices. Realized and unrealized gains and losses are reflected in the statements of revenues, expenses and changes in net position. Realized and unrealized gains and losses from securities in the investment accounts are allocated monthly based on the relationship of the estimated market value of each account to the total market value of the investment accounts, as adjusted for additions to or deductions from those accounts. Fair Value measurements Fair value refers to the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants in the market in which the reporting entity transacts for such sales or transfers based on the assumptions market participants would use when pricing an asset or liability. Assumptions are developed based on prioritizing information within a fair value hierarchy that give the highest priority to quoted prices in active markets (level 1) and the lowest priority to unobservable data (level 3). A description of each category in the fair value hierarchy is as follows: Level 1: Valuation is based upon quoted prices for identical instruments traded in active markets. Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all-significant assumptions are observable in the market. Level 3: Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect the estimates of assumptions that market participants would use in pricing the asset or liability. 19

23 Notes to Financial Statements Note 1 - Basis of Presentation and Significant Accounting Policies (continued) Accounts Receivable - Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a provision for bad debt expense when necessary and an adjustment to an allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable. Inventories - Inventories are stated at the lower of cost or market using the first-in, first-out method. Prepaid Expenses and Other Assets Expenses, such as insurance premiums, that are expected to be of benefit within the next fiscal year are included in prepaid expenses. Capital Assets Capital assets are recorded at the estimated fair market value as of the date of acquisition. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the life of the asset are not capitalized. Depreciation is provided for capital assets on a straight-line basis over the estimated useful life of the asset as follows: Land improvements Buildings and improvements Furniture, fixtures and equipment Infrastructure Library materials 10 years years 3-10 years years 10 years Deferred Outflows of Resources - In addition to assets, the statement of financial position reports a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expense) until that time. The College s outflows of resources relates to the net pension liability. Additional disclosure is found in Note 4. Unearned Revenue - Revenue received prior to year-end that relates to the next fiscal period is recorded as unearned revenue. Unearned tuition and fee revenue at June 30, 2017 includes $2,587,850 for the 2017 summer semester, which began on May 22, 2017 and ended on August 12, Unearned revenue at June 30, 2016 included $2,518,000 for the 2016 summer semester, which began on May 23, 2016 and ended on August 13, Gifts and Pledges - Gifts are recorded at estimated fair value when received and pledges are recorded at their net present value when it is determined that the gift is probable of collection. Accrued Vacation - Accrued vacation represents the accumulated liability to be paid under the College s current vacation pay policy. Under the College s policy, employees earn vacation time based on time of service with the College. 20

24 Notes to Financial Statements Note 1 - Basis of Presentation and Significant Accounting Policies (continued) Deferred Inflows of Resources In addition to liabilities, the statement of financial position reports a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period and so will not be recognized as an inflow of resources (revenue) until that time. The College s inflows of resources relates to the net pension liability. Deferred inflows of resources at June 30, 2017 and 2016 include $5,505,000 and $4,902,848, respectively, for funding received through state appropriations for contributions to the MPSERS pension plan after the measurement date and $525,000 and $574,285, respectively, related to the pension plan as described in Note 4. Net Position GASB Statement No. 34 establishes standards for external financial reporting of public colleges and universities and requires that resources be classified for accounting and reporting purposes into the following net position categories. Net Investment in Capital Assets Net investment in capital assets represents capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction, or improvement of those assets. Restricted Net Position - Restricted net position represents amounts over which third parties have imposed restrictions that cannot be changed by the College. The restricted balance consists primarily of funds restricted for endowments, scholarships, grants, and other purposes. As of June 30, 2016, the College has a grant with negative restricted net position. This State grant has expenses of $2.4 million, the related revenue for this grant will be recorded when the grant restrictions are met by reaching the College s match portion of the grant which occurred in Deficiencies of this nature are reported in unrestricted net position and as such, this $2.4 million deficit has been classified as unrestricted net position on June 30, Unrestricted Net Position - The College has designated the use of unrestricted net position for future capital outlay and maintenance improvements as well as for the implementation of the upcoming accounting pronouncement, GASB 75. Revenue and Expenses - All transactions that result in sales and / or receipts from goods and services, such as tuition and fees and ticket sales from the Center for Performing Arts are classified as operating revenue. All revenue sources that are primarily non-exchange in nature in which the College received value without directly giving equal value in return are classified as nonoperating revenue. Property tax revenue is recognized in the year for which taxes have been levied. Property taxes are levied on July 1 and December 1 based on taxable values as of the preceding December 31. The taxes, which are collected and remitted to the College by townships and cities within the College district boundaries, are collected through February 28. Uncollected real property taxes of the College are turned over to Macomb County for subsequent collection. The College is subsequently paid 100 percent of delinquent real property taxes, net of chargebacks, through the County s tax revolving funds. 21